Deal: Brazil first oil royalty securitisation

Author: Zoe Thomas | Published: 28 Jul 2014

The Brazilian state of Rio de Janeiro has become the first in the country to securitise the revenue from oil royalties. The structure has the potential to be taken up by other states in Brazil and in jurisdictions with similar oil revenue structures.

The cross-border offering closed in June and secured an investment grade rating of BBB- from Fitch. It included a novel feature for balancing multi-currency issuances to prevent inflation from causing an imbalance to the pari passu note holders. The deal also accounted for risk factors that included the possibility of changes to the state's oil revenue.

The deal is an opportunity for Rio to diversify its sources for capital and liquidity while supporting the state pension fund which relies on the royalty proceeds to meet its...